How the student debt crisis highlights the urgency of campaign finance reform
Before the onset of the Covid-19 pandemic, more than a million Americans defaulted on their student loans each year. Today, as unemployment claims rise amid a further rise in coronavirus cases and around 6 in 10 people with student debt struggle to cover their expenses, the financial vulnerability of borrowers n only increased.
The Biden administration and its congressional allies have pledged to make student debt relief a priority. But as policymakers aim for long-term solutions to the crisis, it is imperative that we consider everything the factors that have pushed our country to the edge of a student loan debt cliff – including the role of private money in politics.
Our campaign finance system laid the foundation for the student debt crisis, supporting a federal student loan apparatus that serves the interests of some big political donors and industry insiders at the expense of student borrowers. As for-profit financial institutions and colleges — who wield outsized influence in our elections — pushed their deregulation agendas forward in Washington, they also precipitated a rapid rise in our nation’s student debt bill. leaving borrowers with crushing tuition fees and almost no protection against predatory lending, loan servicing or recruitment practices.
Some 45 million Americans now owe a total of $1.7 trillion in student debt, a figure that has doubled in the past 10 years alone. Economists have long viewed this debt bill as a major drag on the economy, depressing the purchasing power of borrowers and preventing millions of Americans from saving for retirement, investing in their own businesses. and buy houses. Even before the pandemic, nearly two in three borrowers couldn’t make monthly payments large enough to repay the principal of their student loans, and more than half of Americans considered student debt “a major problem” for the country.
And while its effects are pervasive, the burden is not borne equally: Due to intergenerational wealth disparities and widespread discrimination in labor markets, Black and Latino borrowers, especially Black and Latino women , bear a disproportionate share of this debt.
For now, a federal pause on student loan repayments is helping to keep borrowers above water in the wake of the pandemic. But the situation remains dire, especially for Americans between the ages of 16 and 35, who face a pandemic unemployment rate twice that of older adults and more than four in ten of whom have student debt. Nearly 60% of student borrowers now say they would struggle to resume payments next month if they had to. President Biden has ordered the Department of Education to extend Covid-19 student loan forbearance through September 2021. But what comes after that is unknown, meaning payments could come later this year for millions of Americans who cannot afford them.
This level of financial precariousness exists largely thanks to a decades-long effort by Wall Street banks, student loan servicers and for-profit colleges to advance policies that bolster their own outcomes. Between 2000 and 2004, student loan companies more than tripled their contributions to federal campaigns as part of a successful lobbying campaign to make private student loans nearly unpayable in bankruptcy. This policy, enacted in 2005, virtually guarantees that borrowers will always be responsible for their private student loans, even in times of financial hardship.
Lenders, on the other hand, were allowed to extend nearly unlimited lines of credit to students regardless of their ability to repay, allowing schools to raise tuition even further while forcing students to borrow even more. money to attend. Unsurprisingly, the provision generated a massive return on investment for the private student loan industry, which has since grown by more than 70%. Simply put: the industry pushed aggressively for this legislation while simultaneously funneling money into the campaign coffers of lawmakers.
For-profit colleges have also leveraged political spending to protect their financial interests at the expense of students. In the wake of the Great Recession, when many unemployed Americans turned to higher education for an opportunity to advance, the industry increased campaign contributions to push back against regulations. These companies contributed nearly $1.8 million to campaigns in 2008, more than $2.7 million in 2010 and $4.9 million in 2012, while generating up to 90% of their revenue from federal funds in the form of Pell Grants and student loans. Nearly a decade later, for-profit colleges remain largely unregulated — even amid significant regulations related to for-profit college fraud, widespread evidence of discriminatory advertising, and new calls for accountability.
Although student loan managers and for-profit colleges do not contribute to the wide campaigns of other industries and black money groups, they have nevertheless managed to effectively target their political spending on gatekeepers of the law on Higher Education. In the 2014 election cycle, for example, when the average House winner spent a total of $1.5 million, the former congressman and chairman of the House Education and Workforce Committee John Kline’s work (R-MN) has brought in more than $200,000 from the for-profit education sector. . While taking those contributions, he urged his fellow congressmen to block the Department of Education’s paid employment regulations – which required college programs to meet minimum thresholds for graduate debt-to-income ratios in order to receive federal student aid money — and killed the legislation. to reduce abuse by for-profit colleges of federal student aid under the GI Bill.
In a political system that too often gives major donors unique access to elected representatives, it is no coincidence that meaningful action to address rapidly rising student debt has stalled in Congress. Because our system of privately funded campaigns forces legislators to spend an inordinate amount of their time fundraising, members of Congress may find themselves far more exposed to the concerns of industry leaders than to those of Americans most burdened by student debt, who are disproportionately women. , people of color and low-income students.
In order to pave the way for a more equitable higher education system, Congress must embrace the outsized influence of money in politics. The solutions are already available — our leaders just have to use them.
For example, introducing public funding to small donors would allow candidates to rely less on wealthy donors and special interest groups and to spend more time engaging on the issues that matter to their constituents. . At the same time, tightening black money disclosure requirements would allow voters to decide for themselves whether their elected representatives are truly putting their interests first. These reforms are essential to revitalizing our democracy, and they are all included in the For the People Act, a landmark bill currently before Congress.
Our higher education system should be creating opportunity, not pushing millions of student borrowers to the brink of financial disaster in the midst of a pandemic. But our big-money political system stands in the way. If we want higher education to be accessible to all Americans, we also need a democracy that works for all Americans, not just the wealthy and well-connected.